Mining and metals companies have survived tremendous price volatility over the past year and, worldwide, companies are now focused on containing costs and preparing for growth.

Speaking at a media briefing in Johannesburg, Ernst & Young (E&Y) mining and metals 
sector head Adrian Macartney said that the mining and metals landscape had changed faster and more dramatically than anyone had thought possible, presenting the industry with a diverse range of challenges and 
opportunities.

“The general priorities of companies have morphed from boom-related production constraints to back-to-basics efficiency gains through better capital and cash flow management, as well as a heightened risk awareness,” he commented.

Macartney noted that the recently completed the E&Y ‘Lessons from Change’ survey indicated that only 13% of mining entities globally had stated that cash was not a problem for them at the moment. “That leaves 87% of mining companies worldwide that are still concerned about cash flow management.”

About two-thirds of these enterprises were taking a top-down review of cash, getting the most senior executives to take responsibility in ensuring that cash is being conserved.

Of the respondents, 49% thought that the company’s ability to access affordable capital funding had deteriorated over the past six months. “That means that companies are forced to consider alternative sources of funding, with a number of Asian strategic investors coming into play. The survey indicated that 38% of mining and metals companies were considering alternative sources of liquidity.

“The Chinese are key sources of funds at the moment; however, I think they are not 
really interested in becoming miners, but rather
in buying and controlling the assets and the supply chain of commodities.

India is also very active on the African continent, not forgetting Middle Eastern banks, Islamic funds, sovereign wealth funds and private equity. Some companies are also looking at bringing in strategic investors and integrating the value chain to make things work,” said Macartney.

Another alternative source of funding is divestments. Macartney pointed out that a number of companies were converting noncore assets. “Certainly, companies are looking at it as a way of reducing their long-term debt and cutting capital expenditure.”

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